EU Brexit Plan for Swaps Draws Fresh Warning From U.S. Regulator

(Bloomberg) -- The U.S.’s top derivatives regulator is ratcheting up pressure on the European Union to scrap its plan to tighten oversight of foreign clearinghouses, telling senior officials from the bloc that the proposal could damage financial markets and stunt economic growth.

Speaking at a closed-door meeting of policy makers and financial industry executives in Vienna Thursday, Commodity Futures Trading Commission Chairman J. Christopher Giancarlo said the EU proposal would lead to “overlapping and confounding cross-border regulation, with its high regulatory cost and constraints on economic growth.”

His comments were the latest salvo in a year-long clash over the supervision of clearinghouses -- platforms that are meant to prevent a meltdown at one financial firm from spreading to a wide swath of companies. After the 2008 financial crisis, global regulators turned to clearinghouses to bring more transparency to the swaps market and ensure that there are funds to cover trading losses if a bank fails.

The EU bill in Giancarlo’s crosshairs would give regulators in Brussels more authority over clearinghouses outside of the bloc. The plan is a response to Brexit, because once the U.K. leaves the EU, the continent will relinquish oversight of London’s clearinghouses.

U.S. Opposition

But U.S. firms, including Chicago-based CME Group Inc., will also face added scrutiny, and they have engaged in an aggressive lobbying campaign against the EU proposal. The CFTC has won the backing of the White House and key U.S. lawmakers for its push to get Europe to scrap the bid.

In his Thursday speech, Giancarlo urged European authorities to limit their involvement with U.S. companies. And he pledged to do the same.

"I come here today to put forward to you – European policy makers and regulators – a plain choice," said Giancarlo. "My proposal seeks to recognize the power and authority of EU authorities to regulate and supervise the European market with limited involvement from the CFTC. It welcomes an EU approach that will do the same to US firms and markets. This is one approach."

Giancarlo said another option, which he hoped Europe wouldn’t take, is to "to continue down the path of expanding direct European regulation and supervision over third country firms.
The choice of approach is yours to make."

Giancarlo Apology

The comments come two days after Giancarlo apologized for what he says was past overreach by his agency in in dealing with international derivatives oversight.

During a Sept. 4 speech in London, he also called for more deference to regulations governing swaps trading in other countries, and said the CFTC should respect rules adopted abroad as long as they are comparable. The U.S. agency maintains “exclusive” right to make rules for its markets, Giancarlo added.

Since taking over the CFTC under President Donald Trump, Giancarlo, a former executive at a swaps brokerage, has criticized the regulator’s past international policies. Even before this week, he’s called for the CFTC to defer more to foreign authorities, and said that applying U.S. trading rules to offshore business would do little to stem risks to the U.S. economy.

©2018 Bloomberg L.P.